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Russian hubs push the limits

Volumes are soaring, but so are costs and delays. Can the growth continue? Gavin van Marle reports from the inaugural Black Sea Forum in Novorossiysk

The explosive growth of container trade is one of the big stories of this era, and while carriers scramble for market share, supply chains are under severe strain in the Black Sea.

Much of the trade is powered by rapidly increasing Russian demand for containerised cargo, and its premier Black Sea port of Novorossiysk has potential to develop into the number one gateway to the vast Russian hinterland and the massive Moscow market.

Certainly the situation is weighted in its favour: Russia’s only other maritime gateways are either hopelessly congested - St Petersburg - or just too far away - the Far East - and there is strong governmenta pressure on shippers to route their cargo directly into Russian ports, rather than through transit facilities in the Baltic or transhipped in Black Sea ports such as lichevsk and Constanza. And yet it seems almost as if it is despite these advantages, rather than because of them, that Novorossiysk is growing at such a healthy rate. Carriers report ships waiting for

up to 10 days for available berths, and a wait of between four and seven days is normal.
Andrei Naraevskiy, marketing and development director of Russian logistics operator, Global Container Services, adds that containers are often delayed clearance from the terminals by up to 10 weeks.
Additionally, the level of demand and lack of available capacity has led to high costs.
“A crucial problem is the increasing container handling rates,” says Lazlo Sabov, general director of the Russian office of Black Sea Shipping Services. “People are using the opportunity to make a wonderful living out of port operations, which means that the cost is very, very high.”
One of the three container terminals, Novorossiysk Commercial Sea Port (NCSP), recently announced a hike in handling rates, from US$350 per teu to $450, and locals believe the remaining two - NovorosLesExport

(NLE) and Nutep - will soon follow suit. One Moscow-based analyst tells Cargo Systems that NCSP’s profitability per lift is five times greater than operators in western Europe.
Undeniably there is a lack of competition, yet high costs and congested operations have failed to dent Novorossiysk’s dramatic growth.

At Nutep - owned by Russia’s leading operator, National Container Company, itself 50% owned by Russia’s largest carrier, Fesco -volumes in the first nine months of this year grew by 53% to reach 118,470teu, and the port as a whole may even hit the 500,000teu mark for the full year.
But high costs and congestion are not unknown in other parts of Russia either. Transport operators are desperate for the strain to ease somewhere, and the development of southern ports would at least offer an alternative supply chain.

Sergey Kozlov, first deputy general director of Fesco, says it is vital that the country develops its own container gateways to reduce transport costs for Russian shippers and consignees.
He says: “Neighbouring states efficiently use their geographical advantages and Russia’s problems and create port facilities near our borders making profit out of our freight flows. Each container passed through a [foreign] transhipment port costs an extra $300, and this figure is an extra cost to Russian commodities.”

Fesco estimates that annually this figure costs Russia around $600-700m, and Kozlov argues that the flow of cargo into Russia from Asia - the majority of which currently goes through the Baltic - should be diverted to the Black Sea.

However, he and other operators acknowledge this shift is highly unlikely unless considerable challenges are overcome. Neither terminal facilities nor hinterland transport connections are able to cope with present demand, let alone forecasted trade flows.

Kozlov continues: “Novorossiysk is a strategic port to export oil products. However, the container facilities are not given priority by the government. As a result, there is a serious lack of balance between the capacity of the Black Sea ports and the real need of increasing trade.
“The throughput of Novorossiysk is low, the wall length of the container terminals is not sufficient and is not designed for medium-sized ocean going container carriers. There is a shallow draught and only two gantry cranes.

“Approach ways for railway and motor transport are not developed, the main railroad from Novorossiysk to Moscow is quite inconvenient and has a great number of level crossings, the railway tunnel restricts the line greatly, and the highways, especially passing through upland areas, are narrow and winding. As a result, there is traffic congestion and ships waiting for vacant berths - this factor is a major breach of schedules and container line principles.”
The same pressures are seen on road transport, and trucking costs have gone up by 30% since August this year, with little options for shippers other than to swallow the costs or pass them onto to customers.

A further challenge is posed by the legendary inefficiency and bureaucracy of Russian Customs. “There is high pressure from the government,” says Naraevskiy “which has a punitive rather than supportive approach, and the delays to clearing boxes means that the clients have to pay storage costs. We have to find some solution to this very serious problem, which is the result of extreme red tape.”
So despite the obvious potential, the outlook seems bleak, “Will growth continue?” asks Naraevskiy, “Yes, but at a much slower pace because the introduction of new facilities lags behind demand, and the rate hikes don’t help. Our best prediction for 2008 is 20%. The key problem is service dependability. The services have to improve.”

Nevertheless, Fesco will next year launch a dedicated Black Sea service linking ports in the region with the major export hubs of Asia, and there is no shortage of other carriers looking to deploy tonnage in the region.

Additionally, all three container terminals have expansion projects underway. Development at NLE will take capacity to 350,000teu by next year, through the construction of a further two berths and the addition of an extra 14ha.

NLE general director, Gregory Antonyan, says recent volumes have utterly exceeded the terminal’s original design: “It was developed to perform temporary container storage, as wel as cars, and in 1999 we had a throughput of 10,000teu. The storage area is 5.5ha with a draught 7.6 metres, and we are equipped with two [conventional jib] loaders and two mobile harbour cranes. Now there are two ZPMC cranes on the way and four RTGs.”

Meanwhile, Nutep is undertaking a project to expand its capacity to 500,000teu per year with the construction of two new berths and dredging its current quay to accommodate larger vessels.
Further capacity around the port will be gained through an expansion programme currently being undertaken by Novosmorsnab, an off-dock facility that specialises in transferring export freight from railway wagons to containers. The company is developing a second, 22.3ha rail-road facility within Novorossiysk’s First Railway Loop, which is expected to be completed in about two years, and will have a capacity to handle 1.5m boxes per year. The company is trying to obtain a bonded license to de-stuff

imported containers but, says Sergey Zolotorgov, deputy head of Novomorsnab’s forwarding department, the application is enmeshed in Customs’ red tape: “I just don’t know what they think they are doing,” he sighs, “everything they do is detrimental to us, to the port, to Russia. It’s crazy.”
With sufficient development of Novorossiysk’s terminals, and the unlikely possibility of Russian Customs becoming conducive to needs of international trade, Russia’s southern gateway has the potential to create a huge market for itself.

The demand for increased port capacity in southern Russia comes from as far afield as the Urals.
Sergey Shavzis, VP of Strateg Holding, an inland transport provider and container depot operator, says: “Aluminium, copper, titanium, ferro-alloys, ferrous metals, paper and wood are just a few of the exported commodities from the Urals. At the same time, the region is becoming a considerable consumer of imported commodities. However, there are serious problems: lack of warehouses, insufficient container terminal development, lack of large auto enterprises, inadequate temporary storage facilities - all these factors greatly restrain the growth of direct import shipments to the area.

“The southern ports can take a key position. There is a flow of empty top wagons running back to the Urals from Novorossiysk, and these could be filled with imports directed through Novorossiysk, and the most important prospective project is the organisation of a direct container trains between Novorossiysk and Yekaterinburg, but we need the southern ports to be ready for this,” Shavzis says. cs